Tesla CEO Elon Musk and the Securities and Exchange Commission (SEC) have reached a settlement over the securities fraud lawsuit spawned by his infamous “funding secured” tweet.
According to the terms of the settlement, Musk will pay a $20 (£15.3 / €17.2) million fine and these funds will be “distributed to harmed investors under a court-approved process.” Musk will also be forced to step down from his position of as Tesla Chairman.
Musk will be replaced by an independent chairman who has yet to be named. This could only be temporary as the SEC says Musk’s ban on being chairman only lasts for three years. After that period, Musk could presumably be re-elected as Tesla chairman.
In related news, SEC also charged Tesla with “failing to have required disclosure controls and procedures relating to Musk’s tweets.” The complaint alleges that Tesla notified investors that Musk’s Twitter account would be used as a “means of announcing material information about Tesla,” but the company failed to have “disclosure controls or procedures in place to determine whether Musk’s tweets contained information required to be disclosed in Tesla’s SEC filings.” This effectively means that the company wasn’t vetting Musk’s tweets to ensure they complied with the law.
The SEC also said Tesla did not have “sufficient processes in place to [ensure] that Musk’s tweets were accurate or complete.” This is important as the SEC’s lawsuit against Musk stated he made a series of “materially false and misleading statements” about taking the company private and having secured the funding to do so.
Tesla has agreed to settle the complaint with the SEC and will appoint two new independent directors to its board. The company will also be required to “establish a new committee of independent directors and put in place additional controls and procedures to oversee Musk’s communications.” This likely means an end to his off the cuff remarks which include calling a rescuer a “pedo” guy.
As part of Tesla’s settlement with the SEC, the company will pay a $20 (£15.3 / €17.2) million penalty. In similar fashion to the Musk settlement, those funds will be used to compensate investors.
In a statement, the Co-Director of the SEC’s Enforcement Division, Steven Peikin, said “As a result of the settlement, Elon Musk will no longer be Chairman of Tesla, Tesla’s board will adopt important reforms – including an obligation to oversee Musk’s communications with investors – and both will pay financial penalties.” He went on to say, “The resolution is intended to prevent further market disruption and harm to Tesla’s shareholders.”
Musk will reportedly remain Tesla CEO and the settlements don’t require either him or Tesla to admit guilt. Speaking of the settlements, both are still subject to court approval.